Transforming Denials Management: Insights and Best Practices for Your Organization

Denied claims are becoming a financial nightmare for healthcare organizations, with costs skyrocketing.

Effective denial prevention and management have never been more critical, especially considering:

• Medicare Advantage denials increased by 56%, and commercial denials jumped by 20% in 2023.
• 12% of all claims are denied upon initial submission, and of those denials, 31% are absolutely avoidable, 51% are situationally avoidable, and 43% cannot be recovered.

These high percentages underscore a significant opportunity for organizations to mitigate financial pressures amidst uncertain economic conditions and improve operational efficiency by implementing robust denial prevention strategies. 

Denials impact an organization’s financial health by delaying or reducing revenue and constricting operational efficiency, requiring additional time and resources necessary to address and resolve each denial. 

However, conducting a thorough analysis to determine the root causes of denials, implementing targeted interventions to prevent future occurrences, and streamlining the appeals process can help hospitals and health systems avoid these financial and operational challenges. 

Focusing on these areas helps healthcare organizations significantly reduce the incidence of denials, optimize revenue cycle performance, and enhance overall patient satisfaction. 

The cost of denials to healthcare organizations 

Managing and appealing denied claims costs range from $25 for individual practices to $181 for larger health systems per appeal. 

Without the proper processes and technology, these costs can quickly accumulate, leading to substantial financial strain as organizations navigate the complex appeals process to recoup lost revenue. The administrative burden of managing these denials further compounds the financial repercussions and diverts resources from other critical areas.

Beyond the monetary implications, the costs of denied claims extend into operational inefficiencies and organizational well-being. 

Staff time, a valuable resource, is heavily consumed by denials management, from identifying the cause to rectifying the issue and appealing the decision. Compliance issues can also arise as organizations strive to adhere to complex billing regulations, which increases the risk of errors and subsequent denials. 

Additionally, patient satisfaction suffers when patients are caught in the crossfire of billing disputes or experience delayed care—potentially damaging the provider-patient relationship and impacting the organization’s reputation. 

Finding and correcting the root cause of denials 

One of the most challenging aspects of preventing and managing denials is figuring out why they occur. In these instances, leveraging advanced analytics to uncover the root causes is particularly helpful. 

Advanced analytics tools enable organizations to extract actionable insights from vast amounts of data. By analyzing current trends and patterns in denials, they can identify systemic issues, such as coding errors or documentation insufficiencies, that contribute to higher denial rates. 

Once an organization identifies these root causes, other technological advancements, such as process automation, can facilitate targeted interventions to rectify these underlying issues and prevent future denials.

For example, inadequate pre-authorizations are among the top causes of denials. Today, most organizations don’t have the tools to flag visits that require pre-authorization. Using deep analytics that combines past data with payer rules can accurately identify the encounters that require prior authorizations. Automated tools and software can streamline pre-authorization, ensuring the necessary approvals promptly and efficiently before services are rendered.

Then, before sending a claim, ‘claim scrubbing’ is performed.  During this process, the software will use previous rejection information to build a pre-claim logic to scrub the claim and, thus, prevent denials on the backend.

Or, say, the root cause is claim submission delays, which can quickly become a problem when an organization has a coding backlog. Payers have strict submission timelines, most permitting a window of 60 to 90 days from the date of service, and failing to submit within the allotted time will result in a denial. 

Automated revenue cycle software can facilitate timely submission per specific payers’ guidelines, keep track of the claim’s status, provide real-time updates, and allow for quick responses if any issues arise.

Furthermore, maintaining strong payer relations is paramount in effectively managing denials. Open communication channels and collaborative problem-solving with payers can help healthcare organizations understand payer-specific requirements and policies, leading to fewer misunderstandings and disputes.

The role of different types of technology in denials management 

While robotic process automation (RPA), machine learning (ML), and artificial intelligence (AI) often get clumped together when discussing denial management optimization, they are not the same. 

Ideally, organizations should leverage an integrated approach to optimize the different stages of their revenue cycle, from initial claim submission to the final appeal of denials, and utilize the strengths of each technology along the way. 

RPA takes the lead in automating the initial stages of claim preparation and submission. Because it handles repetitive, rule-based tasks such as data entry and claim submission, it reduces human error, speeds up the process, and ensures timely submission that aligns with payer guidelines previously mentioned. 

ML analyzes historical data to identify patterns that could lead to denials. By predicting which claims are at risk of being denied based on past outcomes, ML enables organizations to address potential issues before claims are submitted proactively. For instance, ML can highlight claims that may require additional documentation or pinpoint coding errors commonly associated with denials, allowing staff to correct these issues in advance.

Then, AI further enhances denials management by providing advanced decision-making capabilities and insights. AI can interpret the complex language and requirements of payer contracts, ensuring that claims meet all necessary criteria before submission. Additionally, in the case of a denial, AI can assist in the appeals process by recommending the most effective evidence and arguments to overturn the denial based on similar successful appeals in the past.

Combining technology and human expertise

While technology is significantly beneficial to denial prevention and resolution, the role of a dedicated denials management team is equally as important.

When technology and human expertise are combined, the strengths of each are amplified—allowing for a more nuanced, comprehensive approach to managing denials.

With technology’s assistance, these teams can identify and address denials much more quickly than they could manually. This gives them the crucial time needed to delve deeper into complex cases, appeal denials, and interact with payers on a more strategic level. It also allows them to focus on high-value activities like process improvements.

Establishing a standardized system for reviewing, appealing, and tracking denials and conducting ongoing analysis of denials data to identify trends is often sidelined due to high case volume. However, with the breathing room provided by technology, it can become a reality. 

With standard procedures in place, teams can efficiently manage the lifecycle of each denial, from initial identification through resolution. 

Embracing technology to transform denials management 

Although denied claims are a prevalent and expensive issue for hospitals and health systems, advanced analytics, AI, and automation offer a strategic advantage and the opportunity to streamline the claims process, free up valuable resources for higher priority tasks, and ultimately, significantly reduce denial rates. 

As the rate of denied claims increases, healthcare organizations can’t afford to neglect investing in revenue cycle management operations. 

Hospitals and health systems that embrace technology-driven denial management position themselves for financial resilience, operational excellence, and improved patient satisfaction.

Photo: Mironov Konstantin, Getty Images

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